Institute for Justice

Charlestown Property Rights

A small-town mayor in rural Indiana has made it his personal mission to oust the residents of a tight-knit working-class neighborhood, bulldoze their homes and build a fancy new subdivision for much wealthier people. The only things standing in his way are a plethora of state statutes, the Indiana and U.S. constitutions and, now, the Institute for Justice, which has filed a lawsuit against the city on behalf of dozens of property owners.

Following the U.S. Supreme Court’s notorious decision in Kelo v. City of New London, which permitted cities to take private property for “economic development,” the Indiana Legislature enacted sweeping reforms to prevent the use of eminent domain for private gain. To evade this law, city officials in Charlestown, Indiana, working in concert with a private developer named Neace Ventures, have concocted a scheme to destroy the working-class Pleasant Ridge neighborhood through a process that amounts to eminent domain by other means.

Their plan is both simple and sinister. Charlestown Mayor Bob Hall has turned the city’s once-benign housing maintenance code into a bludgeon. City inspectors have begun issuing crippling fines for property-code violations—including even trivial ones such as a torn screen, chipped paint or a downed tree limb. The fines accumulate at a rate of at least $50 per day, per violation, quickly leaving homeowners with thousands of dollars in fines and no way to pay.

While homeowners try to address each violation, the fines continue to accumulate and the city finds new violations to compound the penalties. Faced with crippling fines, the homeowners find themselves confronted with an offer they cannot afford to refuse. Neace Ventures steps in and offers to buy the property for $10,000. Neace does not have to worry about the fines or repair orders because the city has agreed not to enforce the law against the developer.

The inspections regime has been a windfall for Neace Ventures. Not only has it compelled more than 150 property owners to sell—it has also forced them to sell at a considerable loss. The tax assessed value of the homes is between $25,000 and $35,000, and their fair market value was much higher before the city destroyed the market by vowing to demolish every property. The net savings for Neace, so far, is near $2 million.

Mayor Hall’s alternative eminent domain scheme is illegal and unconstitutional under local and state statutes, as well as the Indiana and U.S. constitutions. The Institute for Justice has teamed up with Pleasant Ridge residents, who just want to keep their homes, to file a preliminary injunction asking the court to put an end to the mayor’s mission to destroy their community.

MRC TV|March 1, 2017

Washington Post|February 21, 2017

Photos

Eminent Domain in Disguise: Putting an End to Charlestown, Ind.’s Unconstitutional Home Inspection Scheme

Charlestown, Indiana, is the site of one of the biggest property rights battles in the country. The city’s mayor, Bob Hall, along with a private developer called Neace Ventures, has concocted a scheme to force property owners in the low-income Pleasant Ridge neighborhood to sell their homes for pennies on the dollar to oust the residents, bulldoze their homes and build a fancy new subdivision for much wealthier people. But in the wake of the notorious Kelo Supreme Court decision, Indiana passed laws preventing the government from using eminent domain for private gain.

To evade these protections, the city is enforcing its housing maintenance code in an illegal and unconstitutional manner. If the mayor’s scheme succeeds, it will not only cause great harm to Charlestown’s most vulnerable residents, it will also threaten to become a model for other cities and land-hungry developers across the nation.

To initiate the mayor and developer’s plan, the city started fining Pleasant Ridge property owners for minor or trivial violations of the city’s housing maintenance code. The city assessed dozens of properties with thousands of dollars in fines—each—in just a few days, for things as minor as a small tear in a window screen or a fallen tree limb in the backyard. Many residents simply do not have the means to pay these ruinous fines. The city, however, has offered property owners a way out: Sell your house to Neace for a fraction of its real value, and you will not have to pay the fines.

Mayor Hall’s cruel attack on the homes and wallets of his own constituents is not what the Indiana Legislature had in mind when it passed one of the strongest eminent domain reform laws in the country.

It is hard to overstate just how unlawful the city’s plan is. Charlestown’s actions violate its own housing maintenance code, Indiana’s Unsafe Building Law, and the Indiana and United States constitutions. That is why the Institute for Justice (IJ) has teamed up with Pleasant Ridge homeowners to fight city hall and save their neighborhood.

The Pleasant Ridge Neighborhood Gives Many People a Good, and Affordable, Home

The Pleasant Ridge neighborhood consists of about 350 homes on a hill in Charlestown, Indiana, just 30 miles up the Ohio River from Louisville. The U.S. Army built most of the homes during World War II for the employees of a then-nearby munitions plant. Though modest, the houses were built to be permanent, and many of the residents of Pleasant Ridge bought their homes from the Army and have lived in the neighborhood for decades. Long after the war ended and the munitions plant closed, the people of Pleasant Ridge have continued to raise families and welcome grandchildren and even great-grandchildren into their homes.

Over the years, some of the houses in Pleasant Ridge have deteriorated, as can happen in any neighborhood. But many are in excellent condition, having been lovingly maintained and improved by proud homeowners for generations. Pleasant Ridge is by far the most affordable neighborhood in the city, for both owners and renters. Most of the rents in Pleasant Ridge are between $400 and $500 per month—comfortably accessible to residents on fixed incomes or working low-wage jobs. It is almost impossible to find other affordable housing in Charlestown at such prices. Pleasant Ridge is a safe place, where working-class families, single parents and elderly retirees who want to be near their relatives can afford to live, surrounded by friendly neighbors.

The Land Grab

In 2014, Charlestown Mayor Bob Hall decided that the working-class neighborhood of Pleasant Ridge had to go. Under his direction, the Charlestown Redevelopment Commission came up with a plan to replace the affordable houses of Pleasant Ridge with a planned “village-style” neighborhood, consisting of upscale housing and retail.1 The homes he envisions will cost hundreds of thousands of dollars, meaning that if his plan succeeds, most, if not all, of the residents of Pleasant Ridge will be priced out of the neighborhood and city they call home. From Mayor Hall’s perspective, however, the only “problem” is how to force the residents of Pleasant Ridge out of their homes.

Often, when cities want to take private homes and give them to a developer for economic development, they invoke the power of eminent domain. The U.S. Supreme Court’s 2005 ruling in Kelo v. City of New London cleared the way for these kinds of abuses, and the decision is rightly reviled as one of the worst in the history of the Court.2 In Kelo, the city of New London, Connecticut, decided to seize private homes and turn them over to another private party in the hope that the new owners would use the land in a way that could create jobs and higher tax revenue. The Supreme Court upheld the taking, ruling that even a mere promise of generating “public benefits,” whether or not those benefits are likely, justifies taking someone’s home and turning it over to another private party for that party’s own profit.

The nationwide backlash against Kelo was overwhelming. Public opinion polls consistently show that more than 80 percent of Americans disapprove of using eminent domain for private gain.3 As of 2016, 44 state legislatures have reformed their state statutes or constitutions to give property owners greater protection against the wrongful seizure of their property through eminent domain.4 In addition, three state supreme courts have squarely considered the Kelo question and unequivocally rejected the use of eminent domain for economic development.5

Indiana’s response to Kelo was to enact a law that prohibits the use of eminent domain for redevelopment projects, unless the objective is to eliminate genuine blight that is an immediate danger to the community. Unlike reforms in other states—which adopted loose definitions of blight and still allow the seizure of unblighted property within a designated “blighted area”—Indiana’s law allows eminent domain to be used only when the specific property to be seized is truly blighted.6 Indiana’s eminent domain reform is among the best in the country.

In a nutshell, the Indiana Legislature enacted eminent domain reform to prevent exactly what Charlestown is trying to do: engage in indiscriminate, area-wide redevelopment in which everyone is displaced and even the well-maintained homes are bulldozed. Nevertheless, Charlestown is pushing forward and it is doing so by abusing its code enforcement powers.

Abusive Code Enforcement: Eminent Domain by Another Name

Charlestown, like many cities, has adopted ordinances that require property owners to maintain their properties in a safe condition. These ordinances require, for example, that trash be picked up regularly, that steps have handrails, and that bedrooms have windows.7 Until 2016, the city had conducted very little code enforcement, but that abruptly changed. Beginning in the summer of 2016, the city unleashed a torrent of code enforcement targeted specifically at the Pleasant Ridge neighborhood. City officials began performing exterior inspections of properties in Pleasant Ridge and mailing citations to the owners. So far, this campaign has primarily targeted landlords who own multiple rental properties, rather than smaller landlords and owner-occupied houses.

The citations state that the owner accrues penalties of $50 per violation, per day. Multiple citations are issued per property, which means that a single property will begin accumulating hundreds of dollars in fines each day. The fines can be for things as minor as a torn screen, weeds taller than eight inches or chipped paint. In many cases, the fines begin the day the citation was issued, not the day the owner received it. So owners can easily be on the hook for thousands of dollars in fines before they even receive notice, and the fines continue to accrue until the owner is able to repair the property.

The city knows that many of the residents cannot afford to pay these exorbitant fines, leaving them only two options: Sell their home to Neace Ventures or raze it to the ground to have the fines waived. The scheme would be bad enough if Neace were offering fair market value for the homes, but it is not. The inspections regime has been a windfall for Neace. Not only has it compelled more than 140 homeowners to sell—it has also forced them to sell at a considerable loss. Most of the homes have a tax assessed value of between $25,000 and $35,000, and they would be worth much more if the city had not caused the market to collapse by announcing in 2014 that it was going to destroy every home.

The fair market value, which is what current owners—many of whom live on fixed incomes or have limited means—would be entitled to under eminent domain, is at least double the current tax assessed value. But Neace’s standing offer is a comparatively paltry $10,000.8 The net savings of the city’s scheme for Neace, so far, has been close to $2 million based on tax assessed value alone. Homeowners in Pleasant Ridge do not want any money; they just want to keep their homes and be left alone.

If there were any doubt that the city’s code enforcement policy is really just about driving people out of their homes, Mayor Hall dispelled it on November 22, 2016, when he posted a message on his Facebook page discouraging the residents of Pleasant Ridge from repairing their homes, calling it a waste of money. He stated that the people who oppose his plans “have already cost property owners thousands of dollars by giving out false information, false claims and false hope.”9 The “thousands of dollars” he was referring to are the expenditures that homeowners have made ensuring that their properties are up to code.

In other words, even though homeowners are being fined for not complying with the code, the mayor says that they should not bother to repair their properties because he intends to tear them down regardless. Additionally, after Neace purchases a property, the city stops all enforcement activity against it and allows tenants to continue living there.

So the city’s enforcement policy was never about the safety of residents. Instead, it has only ever been about getting these affordable homes into the hands of a private developer.

Plaintiff Pleasant Ridge Neighborhood Association

One of the properties the city has cited for code violations is owned by the Pleasant Ridge Neighborhood Association. The Association was formed by a group of Pleasant Ridge residents in 2014 with the mission of opposing the city’s plan to demolish the neighborhood. The Association also helps economically struggling residents maintain their homes. For example, the Association organizes neighborhood cleanup days, when volunteers help other homeowners by painting window frames and mending steps and porches.10

As part of its mission, in 2015 the Association purchased a duplex for $17,000 and remodeled it. The Association now rents out each side of the duplex to three residents for $450 per month. The residents work low-wage jobs, and they appreciate having such affordable housing. The duplex generates revenue that the Association can use to advance its mission and also demonstrates to the neighborhood that properties can be affordably restored and repaired.

Although the Association takes excellent care of the duplex—indeed, one of the objectives of purchasing the property was to ensure that it was well maintained—it was unable to escape the city’s code enforcement blitz. On September 26, 2016, a city official inspected the exterior of the duplex and cited the Association for 12 minor code violations, like a ripped screen and small hole in the lattice work, or violations that posed no immediate threat to health or safety. The city also—against the tenants’ wishes and after obtaining a warrant—inspected the interior of the duplex on November 2 and 3 and issued citations for a further four violations, which were also minor. The Association addressed each violation immediately. Nevertheless, by the time repairs were complete, the fines had exploded to $8,950, a sum that would bankrupt the Association and force it to sell the duplex.

The Association appealed these excessive fines to the Board of Public Works and Safety, requesting that it waive the fines in light of their minor nature and the fact that the Association had made immediate repairs. The city attorney, however, recommended the fines only be waived if the Association adopts a “permanent solution” for the code violations—that is, sell to Neace or raze the property.11 The city subsequently adopted a resolution making the city attorney’s recommendation the official policy of Charlestown, and the Board then denied the Association’s request to waive the fines.12

Other Residents Are Also Fighting Back

The Association is fighting not only for its own rights but also for the rights of its 50 members and the Pleasant Ridge neighborhood as a whole. Plaintiff and Association President Josh Craven is a single dad to his 4-year-old daughter, supporting her with his job as an exterminator. Josh grew up in Pleasant Ridge and he cannot realistically afford to own a home anywhere else.

Plaintiff Tina Barnes is a medical billing clerk who cares for her disabled adult daughter and is raising her two granddaughters as her own. Tina was elected to the Charlestown City Council in November 2015 to represent the Pleasant Ridge neighborhood. Like Josh, she has no realistic alternative to Pleasant Ridge, and she and her daughter and granddaughters will be homeless if forced out by the city.

Plaintiffs David and Ellen Keith have lived in Pleasant Ridge since the 1970s. David is a retired autoworker and Ellen is a hairdresser in downtown Charlestown. Pleasant Ridge is also home to their extended family. They have a daughter, a granddaughter and even two great-grandchildren living next door in Pleasant Ridge. If Mayor Hall and Neace force them out of their home, they will be left nearly destitute in their retirement.

Plaintiff Bolder Properties, LLC, is a company owned by Jeffersonville, Indiana, resident Ann Eldridge. Ann used Bolder Properties to buy four duplexes in Pleasant Ridge to provide her with retirement income. Ann uses this revenue to support herself, her brother and her elderly mother. She takes particular pride in the quality of her rental units, which provide safe and affordable housing to 18 low-income Pleasant Ridge residents. But she will be left essentially bankrupt if she is forced to abandon her properties—the $10,000 she would receive for each duplex is far less than what she still owes on them. Instead of being driven out of the neighborhood, Ann only wants to keep making an honest living on her properties by providing quality homes to those who need them.

These plaintiffs, along with many other members of the Association, are determined to save Pleasant Ridge. They believe that government cannot push people aside just because they are not as wealthy as the sort of citizens Mayor Hall would prefer. The neighborhood intends to prove that you can fight City Hall and win.

The City’s Plan Is as Unlawful as a Plan Can Be

The Institute for Justice is teaming up with the Pleasant Ridge Neighborhood Association and other homeowners to fight back by filing a lawsuit against the city. The city of Charlestown’s campaign of code enforcement violates an array of laws and constitutional provisions.

First, the city’s code enforcement violates its own housing maintenance code. The code allows the city to fine a property owner only when the owner fails to correct deficiencies after being notified of the problem in writing and after being given reasonable time to comply.13 Yet the city’s building inspector has been imposing fines that immediately begin to accumulate on a daily basis. That is flatly illegal under the code.

Second, the city’s code enforcement also violates Indiana’s Unsafe Building Law.14 Like the city’s housing maintenance code, the state statute prohibits immediate fines and daily accumulating fines. The statute also allows fines only if the municipality makes an express finding that the property owner willfully failed to comply with a written order identifying deficiencies in the property. Finally, the statute caps any fine at $5,000. Yet, to take but one example, the city imposed immediate fines on the Association’s home, which accumulated daily and exceeded the $5,000 cap, despite never making a finding that the Association had willfully failed to comply with a written order. Nor could it have made such a finding, as the Association complied immediately.

Third, the city violated the First Amendment by singling out the Association for selective prosecution on the basis of its political activities. The Association has been engaged in extensive political speech opposed to the city’s land grab, and the city targeted the Association in order to stop this opposition. It is well established that even when the government has discretion about how to enforce the laws, government cannot exercise that discretion with the purpose of selectively punishing people for their political speech. For example, while traffic cops do not have to pull over every speeding car, they cannot constitutionally pull over only speeding cars with Hillary Clinton bumper stickers.

Fourth, the city is violating the due process and equal protection guarantees of both the Indiana15 and U.S.16 constitutions. While there is nothing wrong with a city enforcing a maintenance code when the objective is simply to protect the health and welfare of residents, the city of Charlestown is not trying to protect its residents. Rather, the city is using its maintenance code as a pretext. Its real objective is to force low-income residents to sell their homes to a private developer, for pennies on the dollar, just so the developer can build bigger homes for wealthier people. This is an illegitimate and unconstitutional governmental objective. The Indiana Legislature, through its eminent domain reform law, has already outlawed this kind of redevelopment. The city may not twist and bend other laws to circumvent this legislative reform.

Finally, the city is violating the excessive fines provisions of the Indiana17 and U.S.18 constitutions, which require that a fine be proportional to the offense. Most of the fines the city has assessed have been for insignificant violations of the housing maintenance code. Nevertheless, the fines are in many cases equal to a substantial portion of the total value of the properties. The city has intentionally calibrated these fines to make it impossible for owners to keep their homes. That is the very definition of excessive.

Conclusion

The city of Charlestown is not using an $8,950 fine against the Association’s duplex to protect the people of Pleasant Ridge. It is using it to force the Association to sell to Neace Ventures, just as it has previously used fines to force most other landlords in the neighborhood to sell. And individual homeowners will be next. Mayor Hall has made it perfectly clear that Pleasant Ridge must be demolished and rebuilt from scratch by Neace. But the Indiana and U.S. constitutions prohibit the city from going forward with its illegal scheme. The residents of Pleasant Ridge want nothing except to stay in their homes. They will soon have their day in court.